Tenaga Nasional (TNB) reported an 11.9% YoY decline in 1QFY17 net profit to RM1.74bn mainly due to higher forex loss and operating expenses. Excluding the forex loss of RM225.4m however, its core net profit only declined by 3.1% YoY to RM1.97bn, surpassing our and consensus forecast at 30% and 29% of full-year estimates respectively. Revenue for the quarter was RM11.2bn compared to RM10.7bn in 1QFY16, which is in line with our and consensus estimates at about 24% of full year forecast. We like TNB due to its defensive nature and undemanding valuations at a forward PE of 11x. Our Outperform call is reaffirmed with an unchanged TP of RM16.16.

• 1QFY17 revenue increased by 5.3% YoY. TNB reported a revenue of RM11.2bn in 1Q17 (vs. 1Q16 of RM10.7bn), mainly due to increased sales of electricity in Peninsular Malaysia (+3.5% YoY). Growth was driven mainly by demand in the commercial and domestic sectors. Total units sold for Peninsular increased by 3.6% YoY (vs. 3.2% in 1Q16) to 27,811.3 GWh, with the commercial and domestic segments growing at 7.3% and 6.1% respectively.

• Increase in operating expenses by 7.9% owing to higher fuel cost and provision of electricity debtors. Fuel costs increased by 5.0% YoY to RM3.97bn in 1Q17, mostly due to higher average piped gas and coal prices. Daily average gas volume has declined by 8.2% to 1,079mmscfd. However, this was partially offset by an 18% increase in the piped gas price to RM19.70/mmBTU (vs. RM16.70/mmBTU in 1Q16). Meanwhile, coal costs have also increased by 17% YoY to RM1.86bn, due to a 5.3% increase in coal-based generation, giving rise to an increase in its coal consumption to 7m MT. In addition, average coal price per metric tonne in 1Q17 also saw an increase to USD63 from USD59 in 1Q16. TNB also recognised an RM200m provision of doubtful debt relating to the general utilities during the quarter, further contributing operating expenses increasing by 7.9% to RM9.1bn.

• Lower 1Q17 net profit due to higher forex loss and lower contribution from associates. Net profit declined by 11.9% YoY to RM1.74bn, due to higher forex losses of RM225.4m recorded in the current quarter, compared to RM52.4m in the previous corresponding period. Weakening of the Ringgit is the predominant factor. Furthermore, TNB also reported a loss of RM9.7m in its share of associates, partially due to its overseas investments in Turkey and India in which management had already expected to incur losses during its initial year. This is expected to turnaround though, upon commissioning of GAMA Enerji’s new plant and the completion of GMR Energy’s debt restructuring.

Source: PublicInvest Research - 25 Jan 2017